Understanding the development effects of official aid is crucial to building a better bridge between research and policy. This paper reviews the current evidence regarding the impact of aid on growth and poverty reduction, and develops a new narrative. In the light of this narrative, the paper then examines aid trends, focusing on the regions of sub-Saharan Africa and the Pacific. The paper then turns to recent discussion of new and innovative sources of development finance and considers how research has influenced the policy debate through a recent UNU-WIDER study for the UN General Assembly. The paper concludes that aid broadly works, that poverty would be higher in the absence of aid, and that the shortfall in aid during the 1990s has, by implication, made it more difficult to meet the Millennium Development Goals. Hence, a considerable catch-up in aid and other development finance flows is now necessary if poverty is to be substantially reduced by 2015.

Subjects:

official development assistancegrowthpovertyMillennium Development Goalssub-Saharan AfricaPacificinnovative sources of finance